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African Economy: Kenyans hope for cheaper credit fading away


by Bedah Mengo NAIROBI (Xinhua) -- Over a month ago, the Central Bank of Kenya (CBK) came up with a loan pricing tool that was to bring down commercial banks interest rates.

The borrowing rates formula named Kenya Banks Reference Rate (KBRR) is based on averages of the CBK’s indicative rate and the 91-day Treasury bill yield over six months.

The banks were expected to add a premium on the rate based on their costs that include insurance and credit risk.

After the launch of KBRR, Kenyans were hopeful that the cost of credit would plummet.

But these hopes are slowly fading away since interest rates in the East African nation have not come down.

The CBK monetary policy committee set the benchmark rate at 8.5 percent last month, noting that inflation which is at 7.67 per cent is still lower.

While the 91-day Treasury bill rate currently stands at 8.2 percent, but has averaged 9 per cent in the last six months.

This means that commercial banks interest rates in the country should average about 12 per cent.

However, the financial institutions are charging interest rates of between 18 per cent and 25 per cent, according to CBK.

Out of 42 banks, only one responded to the move to bring down the cost of credit by lowering its base lending rate to 12.9 per cent.

The cost of loans and mortgages in the East African nation thus remain unaffordable, with the ordinary Kenyans borrowing money at exorbitant rates leading to rise in Non-Performing Loans (NPL).

Gross non-performing loans increased by 6.9 per cent from 1.09 billion U.S. dollars in March to 1.16 billion dollars in June, according to CBK.

The regulator attributes the sharp rise in NPLs, which is an indication of a rise in credit risks, to spill-over effects of high interest rates.

Analysts blame the failure by the banks to drop their interest rates on increased government borrowing from the domestic market and high credit risk.

"Government appetite for money from banks through the sale of Treasury bills and bonds has been high.

The borrowing increases when there is a budget deficit and thus pushes up interest rates," noted XN Iraki, a University of Nairobi economics lecturer.

According to him, banks in the East African nation, which are the biggest buyers of government securities (53 percent), would rather lend to government than individuals because the former has low credit risk.

Kenya’s domestic debt currently stands at 15 billion dollars following a rise in borrowing as the government sought to finance its activities.

President Uhuru Kenyatta, however, has promised Treasury will cut the borrowing in this financial year to 1.15 billion dollars from 2.18 billion in a bid to lower interest rates and stimulate economic growth.

Another factor that has made rates to remain high, according to analysts, is that commercial banks depend on expensive deposits to extend credit.

Thus, it is impossible for the banks to pay higher interest rates on fixed deposit accounts and extend the same cash to borrowers at lower rates.

However, as Kenyans grapple with higher rates, banks in the East African nation are making super profits.

In the period ending June, the sector recorded 432 million dollars pre-tax profit, an increase of 12.5 per cent from 384 million dollars registered in the quarter ending March.

Bond trading at Nairobi bourse gains 41 per cent

by Bedah Mengo NAIROBI (Xinhua) -- Bonds turnover at Nairobi Securities Exchange (NSE) increased 41 per cent this week as trading at the bourse took a positive turn following a slump last month.

The bonds market turnover increased to over 152 million U.S. dollars from 108 million dollars previous week. Corresponding deals increased to 131 from 80, showed data from the NSE and Central Bank of Kenya (CBK).

The rise in demand for the securities indicates that investors in the East African nation are warming to the bonds as fortunes at the debt market, where interest rate on key government short-term papers has dropped to less than 10 percent.

The NSE equities segment similarly recorded huge gains, with key indices of the market rising.

The NSE 20 Share Index closed the week at 5,028 points, up from 5,020 points last week.

On the other hand, NASI ended the week at 156.43, from 155 the previous sessions.

FTSE NSE Kenya 15 Index, which measures stocks performance of 15 largest companies by market capitalization, ended the week at 203.09 points, up from 203.40 points in the previous week.

The volume of shares traded increased by 86 percent to over 170 million as turnover hit 55 million dollars.

Market capitalization, similarly, recorded significant growth as it rose to 25.2 billion U.S. dollars, up from 25 billion dollars.

"Reflecting these developments, shareholders’ wealth measured by market capitalization gained 194 million dollars, just 69 million dollars shy of the 25.3 billion dollars mark," noted analysts at CBK.

As in previous weeks, the most active counter was the telecommunication and technology represented by Safaricom.

The counter moved 66 million shares or 65.3 percent of all shares traded during the week.

The share is a favorite with foreign investors.

Energy and Petroleum and Banking sectors were the other most active counters, moving 44.6 million or 26.5 percent market share and 26.3 million or 15.7 percent market share, respectively. Agricultural sector was least active with 44,100 shares traded in the period."

The FTSE NSE Kenya 25 Index, which measures 25 most liquid stocks at the NSE, closed the week at 205 points from 205.32 points.

FTSE Government Bond Index gained 0.42 to close at 93.59 points from 93.17 points, reflecting uptick in secondary market yields.

The government during the week sold the five-year and 30-year bond, whose interest rates stood at 11.1 percent and 13.7 percent respectively.


Kenya’s largest retail chain Nakumatt to expand to more African countries

DAR ES SALAAM (Xinhua) -- Nakumatt Holdings, Kenya’s largest retail chain, intends to expand to Burundi, South Sudan, Botswana and Zambia, the firm’s chief executive officer Atul Shah said on Saturday.

"We are also planning to open more stores in the East African region," Shah revealed his firm’s plans during the opening of the chain’s 50th store in Tanzania’s northern tourist town of Arusha.

The store was the fourth in Tanzania after the recently opened Mlimani City in the capital Dar es Salaam.

Two others are in Nyerere Road in Dar es Salaam and Moshi.

"Our dream is to ensure that we double the formal retail penetration in East Africa from the current less than 14 percent to at least 30 percent in the next ten years," he said.

Currently, the company operates 37 shops in Kenya, eight in Uganda, four in Tanzania and two in Rwanda.

"Such a growth for formal retail sector will require concerted efforts amongst all stakeholders and will in turn inspire regional growth," Shah said.

Nakumatt started supermarket operations in Kenya in 1992 and it currently enjoys a turnover of more than 600 million U.S. dollars.

Kenya shilling under pressure as foreign exchange reserves decline

NAIROBI (Xinhua) -- Kenya’s foreign exchange reserves have dropped marginally, putting pressure on the shilling that has declined against the U.S. dollar and the Euro.

The reserves have declined by 51 million dollars since end of July, according to Central Bank of Kenya (CBK)’s data received Monday.

At the beginning of this month, the foreign exchange reserves stood at 6.42 billion dollars, which was equivalent to 4.29 months of import cover.

The reserves dropped to 6.37 billion dollars or 4.25 months of import cover at the close of last week. However, the 6.37 billion dollars does not include the 2 billion dollars proceeds from the Eurobond sold recently to investors in the U.S. and Europe.

While the decline has not crossed below the set four months of import cover, they have affected the shilling.

Decline in the reserves below the four months of import cover means that CBK cannot effectively intervene in the forex market in case the shilling is under threat due to speculative trading.

The regulator quoted the shilling exchanging against the U.S. dollar at 88.3, against the Sterling Pound at 146.5 and against the Euro at 117.4. This is a drop from 87, the level it had traded for months against the U.S. dollar.

According to CBK, the shilling has weakened against the U.S. dollar by 0.3 percent and against the Euro by 0.03 percent since mid this month when it took a downturn following drop in foreign exchange reserves.

On the other hand, it has strengthened against the Sterling Pound by about 0.4 percent and against the Japanese Yen by 0.3 percent.

In the East Africa Community region, the shilling has weakened against the Uganda shilling and the Burundi Franc, exchanging at an average of 29.6 and 17.6, respectively.

However, it has strengthened against the Rwanda Franc, exchanging at 7.83 average, and remained stable against the Tanzania shilling at 18.9.

Analysts note Kenya’s foreign exchange reserves are on the decline because key source of revenue, namely tourism, has taken a beating due to security challenges. Tourism earns Kenya about 1 billion dollars each year.

Western nations in particular U.S., Britain and Australia have issued travel advisories to their citizens, a move that has seen the number of tourists visiting the East African nation decline.

Analysts forecast the shilling could weaken further in coming weeks, sliding past the 88.5 mark against the U.S. dollar.

Kenya had worked to increase its foreign exchange reserves since November last year of 5.82 billion dollars, an equivalent of 4.08 import cover.

Kenya petroleum firm to invest 28.5 mln USD for regional expansion

NAIROBI (Xinhua) -- Kenya’s independent petroleum dealer said Monday it would invest 28.5 million U.S. dollars in the next three years to finance an ambitious expansion drive across the East Africa region.

Tosha Petroleum said it will invest the funds in the rollout of 30 flagship service stations across the region and in the introduction of branded energy products.

Tosha Petroleum Managing Director Abdisirat Khalif said that the rebranding exercise was symbolic of the renewed focus in further deepening the company’s activities across the region.

"We are marching into the future with a bold step, with a focus on delivering unmatched services and high quality products," Khalif said in Ongati Rongai, in the outskirts of Nairobi.

Tosha Petroleum which commenced operations in 2003 has rapidly expanded its footprint, to cover Kenya, Uganda, Tanzania, Eastern Congo, Rwanda and South Sudan.

The company moves an estimated 120 million litres of petroleum annually, through an extensive distribution network covering the six countries. Tosha currently has 200 direct employees and about 1000 indirect employees.

"Our ultimate objective is to ensure that consumers get superior services at all Tosha outlets, and we will complete the consumer experience by offering a wide range of bespoke lubricant and LPG bearing the distinctive Tosha promise," Khalif said.

With the rebranding, the company expects to consolidate its presence at strategic high traffic routes.

Tosha has also announced plans to roll out branded products within the coming months as it seeks to further consolidate an all- round offering to consumers.



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